Self Directed Mechanics: Transfers & Rollovers

Episode Transcript

(00:00) here’s the confusing one if you’ve got an old employer 401K that’s the confusing one cuz sometimes you might have been doing Roth dollars in that and the company was doing a traditional match and so you actually have two buckets of money there a lot of people think they’re taking the money out of their retirement account that’s why I like the word transfer all you’re doing is transferring it the IRS doesn’t care there’s there’s no IRS reporting for this because you didn’t take the money do not do a 60-day rollover or let your
(00:30) finan advisor say oh my gosh you’re going to get taxed on this you’re taking the money out whoa whoa whoa if you think I’m taking the money out we got a problem excited to be here with you today talking about mechanics auto mechanics or we like subed account mechanics yeah this is not we’re not Click and Clack we don’t know what we’re talking about I don’t know if you need a new carburetor or not but I know whether you need a transfer or a rollover to fun your self-directed account I it and that’s we’re going to talk about today
(00:56) is like what account do you set up and a lot of people come here and you already have a retirement account you have an IRA somewhere you have an old employer 401K be like but how do I self-direct it what do I set up with you guys and then how do I get the money over here we want to close the loop on that question like now are you the bad cop or the good cop in this equation cuz I’m good cop okay I’ll for sure I good cop on this one all right I’m going to be bad cop then and say this that’s why you wear the black
(01:22) shirt I wear the white you’re like you’re like the devil I’m like the angel to oh man that one that was hard that was harsh okay well let me say this shirt fits yeah the shirt fits it must be fitted um all right let me throw this out I everybody this is important what I need to say this is um I know many of you are like okay cool I have found the right custodian or trust company they get it oh my gosh this is exciting uh we we’ve put this podcast in a series of steps where this would be the next logical feeling you’re like okay I’m
(01:54) ready to go and you just want to call someone and go make it happen I’m I’m the same type of guy I’m just like oh I found the right person go here’s where you have to slow down for a minute the purpose of today’s podcast from my perspective is you’ve got to understand a few terms and you’re like uh I really have to yes because you’re going to have to call some people maybe you might have to email some people you have to say yes or no and if you don’t know these terms and kind of the mechanics of what’s going on and we’ll keep this simple but
(02:22) you’ve got to know enough to help make it happen yeah you got to know enough to know what you don’t know which a lot of people say oh I have an IRA and then we like you actually have a 401k I have an annuity well does your IRA own that do you personally own it and so we want to kind of make sure you understand what you have and how you get there and then you actually do this online you can call us but you don’t need to okay you can do this fully online and our directed connect portal and but it starts with a
(02:49) process and so let me say out the first thing I want you to do so if you’re already like guys I want to self-direct I got plenty of stocks and mutual funds I want to do something else I want to invest in a private ass asset a real estate deal some alternative crypto whatever you’re into um and you’re like but now how do I do this the first thing we want to look at is what do you already have we need to take inventory of what do you have and what our team thinks what is just the best thing to do get a statement our statement says what
(03:20) it is oh it’s going to be up in the right hand corner and all sudden you go oh that’s not what I thought I had or it’s going to be a big Revelation and another way of um and I really this is really uh a great opportunity for something and that’s building a little personal financial statement at the same time you know just pull it out go what do I got right now you know and have a line okay I’ve got this old 401K I’ve got this oh my gosh I didn’t even know I set up an IRA nine years ago I that’s right I was getting this old statement
(03:52) from who knows what so this is a chance to do your own personal audit inventory and guys I I’ll tell you half the time our clients find money they’re like I didn’t even know I had this account over here what was in it and so you’re really taking ownership and control and it’s very empowering and it’s going to make the rest of the process easy and you’ll be like oh my gosh the best thing I did was ever start self-directing cuz I got control yeah now I know some of you are listening you’re probably like what people do not know what they have I’m
(04:22) all over my stuff and we know you okay all right that’s me all right I’m one okay that’s some of you but I’m just telling you this video is for everyone El he’s talking about the engineers the dentists I’m talking to the Realtors and the online influencers okay yeah they’re like what did I actually set up okay now here’s the confusing one if you’ve got an old employer 401K that’s the confusing one because sometimes you might have been doing Roth dollars in that and the company was doing a traditional match and so you actually
(04:49) have two buckets of money there you might say well I want to self-direct one bucket I might want to self-direct the Roth dollars and in which case you would open up a Roth IRA at directed Ira some of you might looking at your statement when you got it and this is your traditional IRA at TDM marit trade or your SEP IRA at Fidelity what do I set up at directed Ira well you would set up a traditional IRA at directed Ira you could do a sep if you want to still do new sep contributions but those dollars would get into that account type so I
(05:19) want to make sure you understand what account type of my opening is a function of what do I already have okay now we can get into changing it but I just want to say step one is is the account you’re going to set up at directed Ira usually is what you already have yeah and Matt kind of teased you with if you have this you’re going to do that don’t worry about what you’re going to do yet we want you to just get some of these terms down and how you may have arrived where you’re at right now I again getting into
(05:45) the weeds I just open a great little Google spreadsheet that you can share with your spouse your maybe you have a adviser you’re working with or a family member that’s helping you get a Google sheet going and start writing down the name of the accounts where they’re housed the account number and what balances you’re seeing and going online and trying to log in reset your password and get that statement that Matt’s talking about and then download it and start creating a little folder and so you’re really doing kind
(06:12) of this data room situation where you’re building this little data Port where of you’ve got everything youve you have and then I I’d say step two is figuring out what it means but Step One is gather get all that stuff put dollar amounts in account numbers and then there’ll be a column on your spreadsheet of what the hell is this yeah and then you Ira set 401K Roth I mean HSA you could be a variety of things yeah yeah and so yeah get inventory but now we’re like okay you’re again you got to this point of well I wanted to self-direct this so now
(06:49) I’m on your website what do I open what do you have and so I want to come back to that here because this is the threshold question we typically want to set up what you already have with a caveat got here you might want to convert to Roth before you start self-directing we have a lot of clients do that I want to explain that here in a second but the first step is what do you already have okay well this week I experienced something very similar I Patty and I are moving some money around we had some accounts that weren’t here
(07:15) at directed IRA and we wanted to move them over and um it it was fun were so exciting um so this part let’s remember everybody you’ve already done an inventory you’ve got a A list of these and you’ve determined what they are to the best of your ability and if you can’t figure out what they are call that’s cool but you’ve got oh I’ve got an old 401k I’ve got a Ry I got a Roth what’s in my 401k so you can start figuring that out now when you go to our portal and you’re going to set up an account and an ID you’re you’re going to
(07:46) now choose the right place your account’s going to go like you have to have the right account on the other end to receive your money and we’re going to give you that list right now and what what would you start with like the most common and sometimes this is very simple and you guys might be like guys you’re over complicating this I sometimes it is simple for example let’s say you have a traditional IRA at Fidelity you’re going to open up a traditional IRA at directed Ira okay we’re going to get a transfer form and we’re going to send that money
(08:13) we’re going to tell Fidelity hey send 100 Grand from Mark’s traditional IRA at Fidelity to Mark’s traditional IRA at directed super easy okay clear-cut you got a Roth IRA at TDM era trade you open up a and you want to use some of that money or the whole thing you open up a Roth IRA at directed IRA we’re going to have to do a transfer form you send us the statement we send the request to TD marit trade then send however much money you want over to directed now can I add it this point it does get complicated but those are some hanging fruit here
(08:43) yeah and I guess I’m sensitive to the fact that this is your hard-earned money in your retirement and it’s always nerve wracking even Patty was like this week like okay hold that’s the right form where’s my money going I’m like it’s going to go into an account here and and you’ll get an account number assigned you know right away and she’s like okay okay and so CU I I I I’m sensitive and understand that this can be a little nerve-wracking as something new anything new can be a little scary so that’s why we’re going through the these mechanics
(09:12) that was the purpose of this podcast so when you get to that portal you can set up that account online right there in the middle of the night in your pajamas no no problem and then it’ll hike you to the next step okay you’re going to transfer money in and then it’ll ask for the next form that’s necessary so cuz that’s the key is you need to make sure you set up the right account so that that transfer happens properly okay and that’s Pro that’s the biggest takeaway here really at this stage is the mechanics matter here we need to make
(09:42) sure this thing’s going to run right day two is I want to make sure that transfer actually matches up so because you might have an investment 5 days from now and you’re like in a big hurry I mean I got some crypto I want to buy before Friday right now so I’m like when when’s my money going to be in my account I’m calling team members are like chill you know and and like quit poing my the team you know no but job that’s but um no so if you want to make sure these mechanics you’re dotting the eyes crossing the
(10:09) te’s call if you have any concerns but I like that those are the first two so first two and the very most common but the the tricky one is going to be the 401K all right let’s say you have the old employer 401K we have a lot of clients that set up their self-directed account here and they’re moving an old employer 401K over which is a rollover now how do you know what your old employer 401K is it’s confusing and how do what IRA account do I set up for my old employer 401K so again we’re back here you got your statement now here you
(10:40) got to know how to read the statement for your 401k 401ks don’t say traditional and Roth on them some do but most don’t what 401K providers like to use is industry lingo that people don’t know what the hell it is because it makes them feel smart okay so what they do is they call it pre-tax that means traditional or post tax that means WTH so if your 401k statement says you’ve got $ 100,000 of pre-tax dollars and 50,000 of post tax doar that means you would need a traditional IRA to receive that $100,000 of pre-tax dollars and a
(11:14) Roth IRA to receive that 50,000 of post tax dollars sometimes you have a blend of both but you can’t receive it into one IRA account those are different types of dollars now you don’t have to move both you could do one or the other or you could do both and in the example gave there I like that too because it gives you again Freedom this is the feeling we’re going for is we want freedom and control and those are powerful feelings and when you’re like oh my gosh I now know what’s in my 401k and I can transfer that over to the
(11:46) right IRA account and you can invest those differently you may say the traditional I want to go into a crypto type Ira or I wanted to do a regular Ira uh uh a real estate deal or note or a private fund or all sorts of options and then the other one could be Roth and you go o I have a different idea for my Roth I want to loan that out in private notes or there’s a syndication that I went to and and I’ve got a really good exciting deal over there so that gives you Freedom so when you get the don’t see this as a burden see this is really
(12:19) exciting yeah because this is you taking control I mean you know if you there’s the one thing of taking control is you have to do something now Okay the reason you haven’t loved your retirement account before is because it’s been investing you don’t even know what the hell it is okay and it just goes up and down based on the stock market okay and let’s also just hit some of the basic ones like if you have an HSA no-brainer I’m going to open an HSA I have an Esa one of those College savings accounts uh okay I’m going to set up an Esa so in
(12:46) those situations it’s very straightforward uh maybe you have an old sep yeah what would you do with that you have two options on the old SEP IRA you can open up a SEP IRA at directed IRA and keep doing sep if you want if you want to make those contributions many people move to a solo okay but you don’t have to I see some people who still like the lower cost set bya they’re not trying to Max it out they’re cool stay in set by AR land um or you could just move it to a traditional IRA if you’re like well I was putting a lot of money
(13:12) in the SEP IRA before um and maybe I keep and maybe I keep the SE Ira at Fidelity or whatever I’m doing but I just want to send 50k over 100k over for this specific investment well seira are traditional dollars you can actually do Roth SE IRAs now but no one does them anymore we very rarely see them like a wh spotted leopard you know so but so we typically do a traditional IRA to receive your sepire dolls because those are traditional dollars and at any point again you can pull the rip cord and go call yeah the team is going to go all
(13:42) right what do you got okay we’ll help you and this is the account you set up then you can go back to the portal take care of it Y and and get it done and the team will walk you right through it now we get to you’ve got this old 401K and you’re thinking ah maybe not Ira or Roth I might have something more creative I want to do where do we go there yeah maybe you are self-employed small business owner no employees and you want to do the solo 401 okay that’s a little different okay cuz now you’re creating a new 401k plan all right and
(14:10) of course you can work with us to get it set up many people work with our Law Firm they want some advice on how to set it up so now if you did set up a solo 401k plan you actually have an account in the plan as an employee so you know 401K every participant in a 401k has their own account and you might have a Roth account and a traditional account in your 41 1K at XYZ big company or even in your solo 401K so it directed you would have a custodial account with us that you can do Roth or traditional or combination of both okay so I know that
(14:43) can sound confusing the solo 41k plan is your company that created that as its 401k plan for its employee it just happens to be you this awesome employee okay and then you have accounts and so you create an account which will be happen on the directed connect portal we do a lot of the docs when you’re setting up the plan anyways we keep it coordinated for you ask us questions if you have any along the way our team’s here but now when you’re like all right now I want to get the money in yeah and I love that because I’m I I love the way
(15:10) you describe that because now what we’ve done in our step three here is we’ve open the right account to receive and if it happens to be a solo 41k great and you use the law firm if you want to really understand that and have some creative ideas or you can do it in the docs only right there in the portal so whether whether it’s an IRA a Roth a sep an HSA an Esa or even a 401k you’ve now created in step three that account that’s going to receive your money so now Matt we’re ready for step four now we get under all these t andr words
(15:45) transfers and rollovers and yeah so exciting right so let’s talk about that all right because this is how we get the money over if it is Ira to Ira whether this is traditional or Roth you’re going to do what’s called a transfer form Ira World Ira World calls this transfers which is nice because if you have a traditional IRA at Fidelity and you’re open up a self-directed traditional IRA at directed Ira we’re going to do a transfer form they go quick we submit it on our form which you complete in the directed connect portal give us your
(16:20) statement so we can make sure it’s right and we send that to Fidelity they then transfer over the money now I want to put one little note on this no matter what you’re doing here in the process of transfer a rollover you typically want to be in cash in that account because you’re going to transfer over cash to go make your new investment that’s going to be self-directed so if you’re let’s say you’ve got a $300,000 account at Fidelity and you want to transfer 100K over or you transfer the whole 300 but whatever it is you’ll need to get that
(16:48) 100K to cash over Fidelity so sell whatever mutual fund or ETF or stock you’re in down to get that to a cash balance and note to self this is the beauty of this there is no transfer tax there is no penalty there’s no tax income tax there’s no state tax all you’re doing is saying Fidelity bye hi I’m home directed Ira please open the front door I’m so excited and so there’s no tax along the way a lot of people think they’re taking the money out of their retirement account that’s why I like the word transfer all you’re doing
(17:21) is transferring it and and so the IRS doesn’t care there’s there’s no IRS reporting for this because you didn’t take the money do not do a 60-day rollover or let your financial advisor say oh my gosh you’re going to get taxed on this you’re taking the money out whoa whoa whoa if you think I’m taking the money out we got a problem because this is a transfer yeah and so you you want to be confident that you using the right words you got the right account now where it’s going and you’re going to use the t-word transfer
(17:50) yeah and as we’ve talked about already and as you know the only difference here as an accountant directed Ira we don’t just restrict you to stocks bonds mutual funds ETFs we let you invest in what you know real estate private company small business crypto whatever we let you go into that stuff that you’re excited about I think it’s time for the Staples button yeah that was easy that was easy okay that was easy okay I think we’re simple enough yeah yeah okay all right now let’s talk about the now by the way transfer could be an HSA that could be
(18:18) your Esa inherited IRA maybe you had an inherited traditional or an inherited Roth IRA you set up okay we’re going to just transfer over like kind to like kind okay think about that for transfers now what if I’m going 401k to Ira though that’s not a transfer that’s called a direct rollover all right and now what happens there though is let’s say you have a 401k at principal or Vanguard okay old employer and let’s say it’s got pre-tax dollars on the statement of 100K well you would have opened up a traditional IRA at directed Ira to
(18:50) receive these pre-tax dollars which are traditional dollars and you will submit a form on principal form or Vanguard the provider of the 41 K and when the rollover World they have their form where you instruct them to say hey I set up an IRA another qualified account this is not a distribution I’m not going to be subject to penalties roll it over to my account at directed Ira so I want to repeat this so if it’s a transfer I can go to direct at IRA and say hey go get my money from Fidelity exactly and and we have the authority to go to Fidelity
(19:22) and go hey Tom and Mary said screw you send us over that IRA and they’re like bam you know I wish I could have to Tom and Mary no too bad but on a rollover you’ve got to go over to the provider like the Vanguard and say okay guess what I’m leaving roll this over to this IRA account oh and those post tax dollars that are uh IR uh Roth essentially roll those to this account so you’re going to fill out maybe even two forms with them do two on that some of them do you can do it on the same form it just depends and we can try to
(19:53) help navigate you we’ve done it with all the big companies you know I mean we’re doing this 100 times a day almost some so so we we’re very familiar our team knows how to do these forms so but just know that the rollover is coming from a 401k there can be a 403b any employer based plan old employer it’s going to happen on the their form now if I’m going to my you tell us what’s coming by the way so you’ll we have you’ll in the portal you’ll say hey I’m rolling over look for this money it’s coming into my account so we know it’s coming I love it
(20:22) and uh I went through that this week that was part of our transfers they were like the money’s not here okay we got it you know which just wonder now um if I’m moving that money from that old 401K to a solo 401K it’s still a rollover still a rollover because it’s it’s kind of where is it coming from you know um even though that’s 401k to 401K it’s still a considered a direct rollover because it’s going directly into a new retirement account no tax no penalty no 60-day rule or anything it just is going right into the other retirement account
(20:55) now what’s exciting for me to say at this point is that’s it for four steps there you go you got you did an inventory you figured out what the hell of the account was you set up the right account to receive that money so it’s light kind to light kind and number four you filled out the transfer rollover form and baby you’re in business you are in control and you know what you know what the hell you’ve got too yeah it’s so exciting yeah now it’s like to show me the money okay the money is there okay it’s sitting in your account now
(21:22) you’re ready to do the whole thing you want to do in the first place go invest it in something you believe in and that’s where that’s your job to decide what you want to invest into we’re here to help you make it happen and that’s the beauty of self-directing and this is the beauty of this podcast short and sweet you needed to know those mechanics because I promise you in the middle of the night you’re going to go uh why is this so difficult or and you may just have a little again fear and apprehension and you want we don’t want
(21:47) you to have that and so now you know what to say what terms they are uh what they mean and I think this will be a lot more uh pleasant experience in the process yeah and let our team know if you have any questions along the way of course you can always book a call with our team our transfers and rollovers team is great if you’ve already opened the account if you still haven’t even opened the account you’re trying to figure that out work with our new accounts team you can get all that at directed.com thank you for tuning in
(22:10) today until next time stay calm selfir on